How Might $32T in Federal Debt Impact the Wealthy?
The United States is no stranger to debt. In fact, the country's current outstanding debt is a staggering $32.48 trillion (July 2023). While this is concerning for everyone, it is arguably especially so for wealthy people who likely have more assets at stake than the average person. The question at hand is how this ever-expanding deficit will potentially one day impact individuals who have significant assets. In this article, we'll examine the causes of the national debt and what this kind of excessive borrowing might mean for wealthy Americans.
Reasons the Federal Debt Exists
Let’s start with a brief explanation. In essence, the federal debt is simply the accumulation of all the budget deficits the country has incurred over the years. Some of the main contributing factors to the debt include the federal government's spending on social security, healthcare, and defense. Additionally, the COVID-19 pandemic resulted in the government spending trillions of dollars on stimulus packages and other measures to help support the economy. While these measures were perhaps necessary, they still contributed to the growth of the debt.
Consequences of the Government’s Debt
While the immediate effects of this massive debt may not be felt by individuals, they will likely eventually impact the country's economy as a whole. An increased debt load usually translates into a higher interest payment, which in turn may reduce the country's ability to borrow and invest. In the long run, this can result in a decrease in economic growth and higher borrowing costs. Ultimately, this may also mean a reduction in federal programs and services.
How the Federal Debt Might Affect the Rich
The impact of the burgeoning national debt on wealthy people can be a complicated matter. In general, this group will probably face higher taxes to sustain the programs the country has in place, even while reduced services are offered. This is because, as mentioned before, a reduction in services will likely result from a cut in borrowing capacity, which means that the federal government will probably need to rely more heavily on taxes for income. Wealthy individuals may also see their investment returns decrease over time as government borrowing crowds out private borrowing and investing.
Potential Strategies for Dealing with the Debt
Although the federal debt poses a potentially significant concern for wealthy people, there are strategies they can consider taking to help mitigate its impact. For example, they might choose to diversify their investments globally so that changes in the U.S. economy do not hit them as hard. Alternatively, they might decide to invest in sectors that are less affected by the debt, such as technology or health care. Lastly, some may choose to be more proactive in advocating for policies that reduce government spending and/or increase investment opportunities.
The ever-growing federal deficit is an issue that impacts everyone in the United States, including the wealthy. The debt's size and growth should be a concern for those who want to keep their wealth in the long term. While diversification may help mitigate some of the potential damage, it will likely also be necessary to address the issue as a whole via policy changes that are aimed at either boosting the economy or reducing spending. Those who are wealthy (and those who are not) should be mindful of these developments and plan accordingly.
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